Southern, Peoples agree to $23M deal

Finding the right Springfield-area partner was the plan all along.

Justin Cox, community president for Southern Bank in Springfield, said when Poplar Bluff-based Southern Missouri Bancorp (Nasdaq: SMBC) opened a loan production office on South National Avenue in late 2010, it already was looking for the right bank to acquire.

More than three years later, Southern Bank’s parent corporation signed a definitive agreement Feb. 25 to buy Peoples Bank of the Ozarks in a deal valued at roughly $22.9 million.

“We’ve been looking for the right partnership to evolve into the market and move into the Springfield (metropolitan statistical area) where some of our customers have businesses,” Cox said.

While he declined to say how many banks Southern approached with merger talks as it sought to grow its area footprint, Cox said the publicly traded bank nearly bought Southwest Community Bank as a way to originally enter the market. That deal fell through, though, as it lost out in its bid for the failed Southwest Community Bank to Arkansas-based Simmons First National Bank.

Under the terms of the agreement unanimously approved by the bank boards, Peoples Bank shareholders would receive nearly a third of one share of SMBC stock and $10.90 in cash for each share of Peoples common stock. Peoples Bank of the Ozarks is 100 percent owned by Peoples Banking Co., which itself is 80 percent owned by Peoples Service Co.

Southern Bank assumes roughly $6.5 million in subordinated debt and retires $2.9 million in other debt through the deal. The company gains Peoples Bank’s 10 branches in Greene, Christian, Stone, Taney and Webster counties, and assumes its assets of $272 million, loans of $191 million and deposits of $230 million.

Southern Bank Chief Financial Officer Matt Funke said the sale is pending state and federal regulatory approvals, and he expected the deal to close in the third quarter.

He said Peoples Bank signs likely wouldn’t change until a few months after the deal officially closes.

“Once we own it, it is at our discretion to merge their bank into ours, but we don’t know that we would do that right away,” Funke said. “There will be a period of time where we will want to operate it as a separate bank to take our time and make sure we have everything in line from an operational standpoint.

“After you own it, that’s when the real work begins and you start converting systems. We will want to be really careful and make sure we are not damaging the customer’s ability to do business in any way,” he said.

Funke said merging systems would take at least a few months.

In the deal, Peoples Bank Chairman and CEO Todd Hensley is expected to join SMBC’s board of directors.

“Peoples Service Co. is the culmination of approximately 40 years of my family’s involvement in the community banking industry,” Hensley said in a company news release. “Southern Missouri Bancorp is a community-focused partner that can help us both leverage the strength of our franchise and continue to thrive in the ever-changing banking environment.”

Peoples Bank President and CEO Jim Huff said he plans to remain with the bank, serving in a transitional role through 2015.

He said Peoples was not strained by any specific financial issues, but rather was receptive to joining a banking system that could expand its customer reach in an increasingly difficult lending environment.

“With the continued challenges that all the banks are facing, you have to look for efficiencies. You have to look for growth,” Huff said. “We just felt like the time was right for this kind of transaction to happen.”

Huff said leaders from both bank held a meeting last week with Peoples Bank staff to address any merger concerns.

“The intent was to ease people’s worries about job cuts,” Huff said. “We have 10 locations, and they have to have people to work in those locations.

“I think our employees are responding appropriately, taking it all in stride and looking forward to the opportunity to continue to provide services in this area.”

Cox said no immediate job losses are anticipated with the merge, though he said some attrition could occur as titles and duties change.

He said the community banks are a good cultural fit, and the deal provides an ability to grow. After the merger, the combined company’s assets would total roughly $1.3 billion, with total net loans of $951 million and total deposits of $1 billion. The deal would push Southern Bank’s number of branches to 35 across southern Missouri and northeast and north central Arkansas.

“We have the size to take (Peoples Bank) to the next level, and it is really good for their customers and employees because they’ll have a better range of products,” Cox said. “Their workers will be able to go out and handle customers larger than they are used to handling because of their asset size.”

According to the FDIC 2013 deposit market share report, Peoples Bank was the 15th largest bank in the Springfield MSA at the end of June. The bank held 1.91 percent of the area’s deposits with nine offices in the market. Southern Bank, which held 0.41 percent of the market with one location, ranked 33rd in area deposits. Combined, the banks would move into the No. 13 position, based on last year’s market-share data, just behind Mid-Missouri Bank.

The deal comes on the heels of another Southern Bank acquisition.

SMBC closed Feb. 21 on a purchase of Citizens State Bankshares of Bald Knob Inc. in Arkansas.

In Springfield, Southern Bank is slated to relocate its branch to the first floor of the Gardner Capital Inc. building, 4803 S. National Ave., when construction wraps up in late 2014. It currently operates at 4650 S. National Ave.

For its second quarter ended Dec. 31, Southern Missouri posted net income of $2.5 million, a 1.6 percent increase compared to the same quarter of 2012. SMBC stock closed Feb. 26 at $34.22 per share, compared to a 52-week range of $23.64 to $37.

Web Editor Geoff Pickle contributed to this story.